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Monday, June 30, 2008

hanging on the telephone

It looks like there will be a new round of rows between the EU and the mobile phone companies over the EU's plans to further regulate prices.

The Telegraph reports that "Mobile phone companies could stop offering free handsets to their customers after the European Commission vowed to cut the price of phone calls." Apparently "The mobile industry warned that as many as 100 million Europeans could be priced out of the market." It also says that the EU and the UK's OFCOM are on a collision course.

The (ongoing) mobile phone row is quite interesting - not just as an example of the EU's amazing ability to snatch defeat from the jaws of victory - but also of a fundamental tension in the way the EU does things.

The EU: retro -and not in a good way

In the case of mobile phones the commission had and has a choice between (a) measures to increase competition in the wholesale market and increase transparency, or (b) direct price controls.

The former is clearly better from an economic point of view (the idea that the Government should control prices directly has been rather discredited since 1989), but the latter is more visible and more populist. The Commission went for the latter, so that it could show it was "delivering benefits" for citizens.

Mobile phones are far from being the only example of this. One of the best writers on this subject is Giandomenico Majone. It's quite hard to pin down exactly where he is coming from (federalist? confederalist?), but one of his main theses is that the Monnet method of integration by stealth is failing.

He argues that the EU often has to choose between efficiency and deeper integration or democratic legitimacy and deeper integration, and always has to choose deeper integration.

He also argues that an inevitable side effect is over-regulation and an institutional framework which is too rigid to allow innovation (and few government policies are worse for innovation than direct price controls)

As well as being bad for the economy, Majone's real worry is that the "community method" is bad for democracy. In a paper for Jacques Delors' think tank Notre Europe he writes:

The fact that the functionalist (or Monnet) approach to European integration taken in the 1950s entails a fundamental trade-off between integration and democracy.

The logic of the approach is such that any time a choice between integration and democracy has to be made, the decision is, and must be, always in favour of integration. This logic is evident in the case of the classic Community Method.

The most important feature of the method—the Commission’s monopoly of legislative and policy initiative—represents a flagrant violation of both the constitutional principle of separation of powers and the very idea of parliamentary democracy.

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As we saw above, legitimacy involves the capacity of a political system to engender and maintain the belief that the existing political institutions are the most appropriate ones fora given society. In the case of a new system such as the EU, which cannot count on traditional sources of legitimacy, this presupposes the ability to sustain popular expectations, on the grounds of effectiveness, for a period long enough to develop legitimacy upon a new basis. This is the reason why the poor economic performance of the EU economy over decades is so worrisome also from a normative viewpoint.